Inequality will be THE issue of 2014

Date Published: 12/26/2013

Author: Dane Smith, President

ST. PAUL LEGAL LEDGER CAPITOL REPORT

A heated exchange about causes and possible responses to widening economic inequality broke out recently among some of the Minnesota Legislature’s more senior leaders in a meeting of the House-Senate Legislative Commission on Planning and Fiscal Policy.

The clash pitted Senate Minority Leader David Hann and state Rep. Greg Davids, who essentially argued that inequality trends were normal or unimportant, against House Speaker Paul Thissen, state Reps. Ann Lenczewski and Diane Loeffler, and other panel members who maintained that inequality indicators were alarming, unfair, and damaging to the economy.

The dust-up went a little viral. It ended up in Huffington Post online, as well as other news and social media sites, nationally as well as locally. And it focused attention on a recent Growth & Justice report that sparked the exchange, “Widening Economic Inequality In Minnesota,” co-authored by University of Minnesota professors Jay Coggins and Thomas Legg, who presented their findings to the legislative panel.

Few issues are as complicated and global in scope, and brilliant people of good conscience on both sides disagree about causes, effects and what public policymakers can do to mitigate an unprecedented accumulation of wealth and income among the top 1 percent, and stagnation for the vast middle class.

But economists and voters are now clearly shifting toward agreement that inequality is hurting the overall economy and that we ought to seek remedies.

An Associated Press survey this month of three dozen leading economists found a majority agreeing that the gap between the wealthiest and everyone else is actually becoming a drag on overall U.S. economic growth.

“Higher pay and outsize stock market gains are flowing mostly to affluent Americans,” was the AP’s analysis of the economists’ consensus. “Yet these households spend less of their money than do low- and middle-income consumers, who make up most of the population, but whose pay is barely rising.”

The AP quoted Scott Brown, chief economist at Raymond James, a financial advisory firm: “What you want is a broader spending base. You want more people spending money.” And Michael Niemira, chief economist at the International Council of Shopping Centers: “The broader the improvement [in income gains] the more likely it [the economic recovery] will be sustained.”

Even more important to politicians and office-holders in 2014, voters now seem to be increasingly in favor of specific government policies that improve the security of middle-income families, and the degree to which they share in profits from growth and their own productivity.

This may come as a surprise to those who think the electorate is once again turning anti-government, but the most recent Washington Post-ABC News Poll produced a lopsided response to this question: “Do you think the federal government should or should not pursue policies that try to reduce the gap between wealthy and less well-off Americans?’’ By 57 percent to 37 percent, the public favored pursuit of inequality-reducing policies.

And given a balanced choice question on minimum wage increases (wording that included the argument that business might cut jobs in response to a higher minimum), a whopping 66-31 percent majority now favor raising the minimum wage.

But here’s the most stunning finding in the Post-ABC survey. Although most everything that the public sector does has the effect of immediately reducing inequality — from public schools to Social Security to Medicaid — most Americans in the poll think government policy-makers themselves are favoring the rich.

By 64 to 26 percent, the widest margin of any question in the inequality section of the poll, the respondents said that government policies do more to favor “wealthy” Americans than they do to favor the “less well-off.” That’s astounding. Although that result may reflect misunderstanding about how taxes and public investment equalizes opportunity and economic security, it also may reveal a deep resentment about the ways in which wealthy people and special interests wield a disproportionate influence on the political process.

Some progressives believe this spells potential trouble for Democrats, who are too timid about waging class warfare and too cautious about reducing inequality per se. Inequality actually has worsened since Barack Obama became president, and conservatives and Republicans are beginning to work class warfare to their advantage. They increasingly point to middle-class stagnation to counter boasting by a Democratic president and Democratic governors about rapidly improving economies under their watch.

And liberal blogger Greg Sargent opines that Democrats should “emphasize the need to combat inequality as a defining issue of the party and of our time.” Sargent notes that while “government” and “spending” still do not poll well, “when you introduce combatting inequality into the mix, suddenly opinion changes. Indeed, though it’s often said Americans reject ‘class warfare,’ individual government policies to fight inequality — higher taxes on the rich, strengthening the safety net, funding for education, infrastructure spending to create jobs, hiking the minimum wage — are broadly popular.”

At long last, however, there is crucially important consensus that inequality really is widening and that we all need to figure out how to help the middle class regain the share it had 30 years ago. As long ago as early 2007, President George W. Bush said at a meeting of business leaders: “The fact is that income inequality is real — it’s been rising for more than 25 years.”

The inequality issue dominated the news this month in large part because of President Obama’s recent speech on the subject, which many consider to be one of the most historically sweeping and deeply philosophical in his presidency.

As Obama said in his speech, “the premise that we are all created equal is the opening line in the American story.” And among the myths about inequality Obama dispelled in that speech, this statement stands out.

“We need to dispel the myth that the goals of growing the economy and reducing inequality are necessarily in conflict, when they should actually work in concert. We know from our history that our economy grows best from the middle out, when growth is more widely shared. And we know that beyond a certain level of inequality, growth actually slows altogether.”

We almost certainly are now beyond that “certain level of inequality.”

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A version of this column originally appeared in the St. Paul Legal Ledger Capitol Report on Thursday, December 26, 2013.